Article: COVID-19 and Disruption

Ecuador's Banana Trade

Vicente Wong, CEO of Reybanpac, helps us explore the infrastructure and strategies that have made Ecuador the world's foremost banana exporter.

The globalization of the markets caused the world banana industry to grow two and a half times in sales volume in the last 30 years.

This emerged in the early 1990s with the opening of economies and the free circulation of goods and services worldwide. This stage brought very important changes in the demand to the industry, among them, the opening of the markets of Eastern Europe, the Eastern Mediterranean, and North Africa, as well as the opening of the markets of Iran, Iraq, Russia, and China.

Other significant changes were advances in telecommunications and the expansion of global connectivity, both of which facilitated large-scale trade around the globe. The appearance of modern trade channels in developed markets has allowed greater penetration, with the well-known supermarket as the powerful sales model.

Container transportation replaced reefer ships and has become, in terms of cost and scale, the world banana trade's first choice.

Add to this the numerous investments made in producing countries to equip themselves with new technologies for greater productivity and resources that allow better socio-environmental practices and one can see that the whole sector has clearly changed.

This has turned the banana industry into one of the largest generators of foreign exchange and employment in rural areas of Latin American countries.

And in this regard Ecuador is taking the lead.

Challenges for the Sector

When the Ecuadorian banana sector was still concerned about the outbreak in Colombia of Panama Disease (TR4) and its possible impact on the subsistence of the industry, this silent, but lethally contagious Coronavirus made its presence known.
The virus, in addition to its significant impact on public health, strikes the foundations of globalization and the free movement of people, the fundamental basis of the massive growth in consumption in world markets.

Undoubtedly both positive and negative changes are forthcoming, but what will be a common denominator is the increase in biosafety costs, the loss of efficiency in processes and transportation, and a significant and understandable absenteeism in the fields.

In the short term, we have had to react to market closings and the loss of value of the product, especially in wholesale markets that supply hotels and shops closed by mandatory quarantines in different countries.

The retail channel suffered at first from the alarm of borders closing and later from confusion in transportation services; on the other hand, at first there was a peak in sales due to panic shopping, later stabilizing thanks to the activation of online channels to keep stores open during the period of isolation.

A tremendous question is how the summer will be for the industry when the cycle is normally low due to the competition of seasonal fruit from the northern hemisphere.

However, considering the problems that agriculture has suffered in developed countries due to the lack of migrant labor because of the isolation in their countries and the closing of border traffic, an opposite effect could occur.

The Medium Term

Returning to normalcy will not be easy, which means consumption in wholesale channels will be subject to the reopening of shops, hotels, and tourism, many of which will have financial difficulties; others will not be able to continue, which could bring about market consolidation.

We must also consider that the employment crisis will affect household consumption, which would generate slower inventory movement that producers and exporters will have to face in order to stock the product and collect payment from their customers, which would imply greater risks in this channel.

As for the modern channel (supermarkets), these must make their risk assessments and will surely diversify their origins further to avoid having a supply chain break in extreme cases, and will value those suppliers that were able to meet their demand during the crisis. Likewise, the traceability of the product will surely be more rigorous. Supermarkets today more than ever will be closely observed as to the security measures taken in their value chain to ensure that staff are protected against the risk of contagion.

The Long Run

If there is something that is said, it is that the consumer has taken the forced quarantine as an opportunity to improve their consumption habits, selecting fresh and nutritious products. On the other hand, the importance of working with companies that demonstrate social responsibility with the community, care for the planet and for the health of its workers, grows and becomes constant.

The value chain should strengthen health departments to give even more attention to its people and monitor their health status permanently. Food traceability will be a passport to enter the markets. Digital sales channels and the use of smart tools will be intensified to serve the customers, which will lead to the creation of new packaging and presentations.

Finally, as a result of this experience, producers, exporters and all members of the agro-export chain must have better risk management and business continuity plans to become reliable actors in the chain. If there is something we must learn in the future, it is that the mistakes made due to lack of greater foresight cannot be made again, and this will mean investments or diversification of national service providers to guarantee the normal operation of the chain.

The challenge is great, but the commitment is greater.

Undoubtedly, we will have a consumer more concerned with personal and product safety, more knowledgeable about who produces it and how it is handled through the value chain. Digital platforms and online sales will continue to be of great help in avoiding crowds and preventing new outbreaks until a definitive vaccine is found.

The problems of lack of employment as a consequence of the crisis will undoubtedly affect the consumption capacity of families and this will impact demand in the markets in the short term. In the medium term, given the huge amount of money injected into developed economies, it will be possible to see growth in those economies and renewed consumption.

The economic crisis of these countries in the short term will harm businesses and the wholesale market, and many of them will not be able to survive.

This in turn could result in the consolidation and redistribution of channels, especially in emerging economies.

On the production and exportation side, we are aware that health comes first, but we must recognize the impacts on operational costs due to the use of protection protocols to avoid possible contagion. Absenteeism of personnel is a reality in the field, ports, patios, transportation, added to the inefficiencies in the performance of plants and packing areas in order to maintain the necessary safety standards.

Ecuador, unlike other producing countries, does not have its own currency and its economy has become more expensive and bureaucratized in recent years, which has affected the competitiveness of the sector. This is why it is necessary that we move from an extensive production model to a technologically intensive model, which allows us to focus more on productivity to improve our competitiveness.

The Ecuadorian banana sector has learned that it is not time for everyone to work on their own, and that instead a collaborative effort among unions, integrating the public and private sectors, is the ideal way to achieve significant changes in the long term.

The pending task is to seek synergy at the Latin American level for active participation in the different international markets on issues of impact in the commercial, social, environmental, and safety spheres, among others. The exchange of information and coordinated work will lead us to have a better balance in market and production relations.

But despite the great difficulties, the Ecuadorian banana sector is determined not only to keep the chain functioning as it already does, but to continue being a benchmark in the industry, capable of adapting to changes and continuing to improve in all areas of the business with a deep sense of social and environmental responsibility.

Our determination lies in the commitment we have with our country and with the thousands of families around the entire banana production chain, to contribute to their development through economic growth and a better quality of life. We are also driven by the mission of supplying the world with one of the richest and most nutritious fruits. At Reybanpac we are proud to healthily nourish the homes with the highest quality bananas following high safety standards with responsibility.

The Ecuadorian banana has been characterized over the years as a social product and very resilient in the face of crisis, today it will be no exception. Our vision is clear and we are heading towards it.

- Vicente Wong, CEO of Reybanpac

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